Global savings in the shadow of the crisis

Sep 26, 2012

These are challenging times for savers. Faced with a looming “pension gap” owing to the ongoing demographic change, private households need to accumulate higher level of savings to build a sufficient nest-egg for the future. But financial markets are not being kind to them, as the new “Allianz Global Wealth Report” shows: Last year, financial assets barely increased, with net per capita financial assets growing worldwide by a measly 0.6%. This disappointing development is due primarily to low growth in gross financial assets: although the EUR 100 trillion mark was surpassed in 2011 – also thanks to the weak euro – pushing the global financial assets of private households up to EUR 103.3 trillion in total, the growth rate came in at only 1.6% and in per capita terms at a mere 0.8%. Uncertainty, low interest rates and the euro crisis have left their mark on asset development. Savers are bearing the brunt of the fact that no real progress has yet been made as far as reorganizing the financial markets and solving the crisis in the eurozone are concerned.

Looking back, it also becomes clear that savers have been faced with a hostile savings envi-ronment for some time now: since 2000, gross per capita financial assets have been growing at an average rate of 3.1% a year; this is more or less identical to the average rate of inflation during the same period. In other words: savers worldwide have not been able to achieve any real asset growth over the past eleven years. Sobering news.

On the other hand, savers have been showing a more disciplined approach to debt since the financial crisis of 2007/08. The global debt mountain once again increased only moderately, by 2.2%, in 2011, much slower than the growth in nominal economic output. As a result, the global debt ratio (liabilities as a percentage of global GDP) slid by 2½ percentage points last year alone, to less than 67%. In the years prior to the crisis, global debt growth was often above the 8%-mark, with the debt ratio peaking at almost 72%.

Over the entire period starting in 2000, however, debt growth (averaging 5.5% per year) has clearly outstripped the growth in the assets of private households (4% per year). This is why the average growth in net per capita financial assets came in at only 2.5% a year. What is more: at EUR 14,880, the 2011 figure was still down slightly on the historical high recorded in 2007 in absolute terms. Although four years have passed since the global market and eco-nomic slump, the consequences on personal financial assets have yet to be digested in full.

In addition to the greater debt discipline, global asset development in the post-Lehman era is characterized by another phenomenon: the ongoing desire to seek refuge in secure invest-ments, a trend that is primarily benefiting the banks themselves – irrespective of the banking crisis. Over the last four years, bank deposits in every region of the world proved to be the fastest-growing asset class. Last year alone, savers worldwide ramped up their bank deposits by more than 6%, or around EUR 2 trillion. This means that the proportion of the asset portfolio parked in bank deposits has increased by 5½ percentage points since 2007 to 32.8%. At the same time, the proportion of securities has dropped by 6½ percentage points to 34.6%. However, this tendency to “flee” to (supposedly) low-risk investments, such as bank deposits, is counterproductive. The negative consequences of low interest rates become all the more potent. And with savers shying away from long-term investments that offer the sort of returns they need, this means that they have to save even harder in order to create a sufficiently comfortable financial cushion. A responsible approach to provision ultimately in-volves a certain degree of risk-taking.

But not all is gloom. Global figures do, of course, mask very varied developments at regional and national level. Broadly speaking, the world can be split in two when it comes to both asset levels and momentum. On the one hand, we have the richer countries in North America, western Europe, Japan and Oceania whose growth has been anemic in the past and whose weight on the global development is huge. Since 2000, net per capita financial assets in these countries have only been growing at annual rates of between 1.2% (Japan) and 2.4% (Oceania). This is particularly worrying from a European perspective: if we look at asset growth and the annual growth rate of 1.3%, western Europe is already starting to resemble Japan. And the rich regions of the world have yet another negative development in common: net per capita financial assets have contracted since the Lehman crisis, although in western Europe this is solely attributable to the decline seen last year. The substantial asset losses in those European countries that have been hit by crisis are the main factor weighing on asset development in the region as a whole.

By contrast, growth in the up-and-coming economies of Latin America, Asia and eastern Eu-rope has been far from anemic. Savers in these regions have been consistently reporting stellar asset growth rates since the turn of the millennium, with net per capita financial assets growing at annual rates running into the double digits on average. Although the financial crisis of 2007/08 also prompted a marked slowdown in these regions, the annual growth rates remain robust at between 7% and 10%.

Even more enlightening is the analysis of the micro distribution of assets. It reveals funda-mental and encouraging shifts on the global wealth map. At the end of 2011, around 720 million people across the globe belonged to the wealth middle class, which the “Allianz Global Wealth Report” defines as net per capita financial assets between EUR 4,500 and EUR 26,800. This figure has more than doubled since 2000. This group accounted for 15% of the total population of the countries analyzed. This growth is being fed largely from the world’s poorest countries (LWCs): at 355 million, they now constitute the largest group within the global wealth middle class; this figure has increased almost tenfold since 2000. In a global comparison, more and more people are managing to participate in general prosperity. And these people no longer come from the typical prosperous regions, but from up-and-coming economies, particularly in Asia. This will fundamentally change the face of the global finan-cial, asset and goods markets over the next few years.